Highlights Below expectations.Sunway recordedRM64.2m core earnings for 1Q12 (+16% y-o-y; -35% q-o-q), which is only 16% and 18% of our and consensus’ expectations, respectively. Earnings were dragged down by its property and construction divisions. Its property investment division’s PBT fell 23% y-o-y and 73% q-o-q due to seasonality and higher interest expense after restructuring of Group borrowings, while construction PBT contribution tumbled 55% y-o-y due to slower progress billings for some local projects and delayed works for the LRT project. Our View

Our ViewMRT and Iskandar to kick in next year. We trimmed FY12-13F earnings by 2%-8% after imputing slower property sales following stricter lending guidelines imposed by Bank Negara. However, the Group is set to achieve strong FY13 earnings led by contribution from the RM1.2bn MRT Package V4 contract and Phase 1 launch of its RM12bn GDV development at Iskandar Malaysia.

2-3 years earnings visibility. We remain optimistic of the prospects for the Group. It has c.RM4bn outstanding construction order book, while its property development division has RM1.7bn effective unbilled sales as at March 2012. IT also derives stable income from its property investment division and 37% stake in Sunway REIT.

RecommendationMaintain BUY.We nudged down our SOP-derived TP to RM3.00 after the earnings downgrade. Current valuation remains attractive at only 7x FY13F PE, making it the cheapest conglomerate in the DBSV universe